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bne December 2017 Central Europe I 31
The growth is mixed with Central Europe being the star performer – Czechia and Romania are the outstand- ing examples, but even the laggard Eastern Europe is seeing many countries like Russia and Belarus put in better than expected results. All economies
in the EBRD space, except Azerbai- jan and FYR Macedonia, saw positive growth in the first half of the year.
Several countries, notably Roma- nia and Turkey, are enjoying growth rates comparable to the pre-financial crisis levels of the mid-2000s.
The EBRD’s chief economist, Sergei Guriev, said: “The broad-based recovery is a very welcome develoment. It also creates a window of opportunity to carry out reforms that will ensure the sustainability of the stronger growth rates over the longer term.”
Unfortunately, it is usually exactly the time when it becomes easier to make reforms that governments feel the
least need to make them. While the economics of most of the CEE countries have improved, the politics in many of the same countries have gotten worse. Romania, Czechia, Ukraine and Russia are all cooling on the idea of putting deep structural reforms in place and the rise of nationalist politics in regions like Southeast Europe is distracting politicians, who have in many cases preferred to push illiberal agendas. Poland, Belarus, Hungary and more recently Romania and Czechia have all seen large anti-establishment parties or radicals returned in elections in
the past few months. Czechia is the latest example, with the ascendance of the Ano movement which won with a landslide in the general election.
Growth across the region is expected to continue into 2018, but at a slightly more moderate pace of 3.0%, the EBRD said. Despite the recent acceleration in eco- nomic output, the EBRD expects average growth in to remain slightly below that of other comparable emerging markets. The bank also offered a cautionary note in saying that despite the good news, the ongoing growth story remains subject to many risks, including geo-
political tensions, persistent security threats, the growing appeal of populist anti-globalisation policies in advanced economies and a high degree of concen- tration in the sources of global growth.
Inflation is largely on track to meet cen- tral bank targets and in Russia’s case has already long passed the 4% the Central Bank of Russia (CBR) was aiming for;
in November inflation fell to a record 2.7%. However, inflation is a problem elsewhere. In the Balkans, Azerbaijan, Egypt, Turkey and Ukraine inflation rates are in the double digits, reflecting earlier depreciations of the respective curren- cies. Similarly, inflation is expected to rise in Uzbekistan (a reforming country the EBRD is returning to after a long absence) where the Central Bank raised its policy rate by five percentage points following an exchange rate liberalisation.
In about two-thirds of the countries where the EBRD is present, the ratios of non-performing loans (NPLs) peaked in the double digits after the 2008-09 global financial crisis. In half of the economies, the NPL ratios peaked at levels close to or above 20%. In most countries, NPL ratios continued rising for several years after the crisis before peaking and start- ing to decline. A few exceptions include the Baltic States where NPLs peaked early and by now have declined to levels around or below 5%. In contrast, in several economies in Eastern Europe and the Caucasus and Central Asia, NPL ratios are yet to start declining. The declines in NPL ratios from their peaks have on aver- age been modest and NPL levels remain elevated across much of the EBRD map.
Growth is expected to moderate somewhat in 2018, to 3%, in line with
Export and GDP growth H1 2017, %year-on-year
Source: CEIC, national authorities. Exports in nominal euro terms.
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